In last week’s NIC Notes, we shared three highlights from the October NIC MAP® Data Service webinar on key seniors housing data trends during the third quarter of 2019. Two additional key takeaways are detailed below.

Takeaway #1:  Increase in seniors housing occupancy from an 8-year low.
Takeaway #2:  Slight increase in assisted living occupancy.
Takeaway #3:  Slowing of assisted living units under construction.

Takeaway #4:  Wage growth continued to exceed rent growth.

• Since 2017, same-store asking rent growth for assisted living has been decelerating and this pattern continued in the third quarter when annual rent growth slipped back to 2.3% from 3.8% in late 2016, and from 2.8% one year ago. This can be seen on the orange line below.
• For independent living, the pattern is not as consistent and, in the third quarter, annual asking rent growth was 3.0%.
• Compared with the growth of average hourly earnings for assisted living in the second quarter, which increased by a very strong 5.9% from year-earlier levels, asking rent growth has been lagging. Based on anecdotal comments from operators, the BLS estimate of 5.9% seems to be more accurate than past readings of the upward pressure they have been experiencing for wage growth.
• For many operators, labor expenses amount to 60% of their expenses so this is taking a toll on their ability to maintain and grow NOI.
  

Key Takeaway #5:  Wide distribution in price per unit (PPU).

• The chart below represents a snapshot of the pricing distribution of seniors housing and skilled nursing properties as of the third quarter of 2019.
• For perspective, the average price per unit for seniors housing was $184,000, which represents an increase of 9.2% from the second quarter when it came in at $168,500. Compared to a year ago, the price per unit increased 17%.
• There is a wide range of pricing, however, as this chart shows, with the upper decile at $324,000.
• For skilled nursing the upper decile is $200,000 lower at $134,000. 

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The Labor Department reported that there were 128,000 jobs added in October, despite the GM strike, which reduced the jobs count by about 50,000.  This beat the consensus estimate of 75,000 and marked the 109^th consecutive month of job gains. Excluding the drop in auto-related jobs, payrolls were up by a strong 170,000 positions.

Revisions also added a significant number of new jobs to the prior two months.  The change in total non-farm payroll employment for August was revised up by 51,000 from 168,000 to 219,000 and the change for September was revised up by 44,000 from 136,000 to 180,000.  Combined, an additional 95,000 jobs were added to original estimates.   Monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors.  After revisions, job gains have averaged 176,000 over the last three months.

For the ten months through October, the average monthly increase in total employment has been 167,000, below the average monthly gain of 223,000 in 2018 (note that this will likely be revised down based on the recent preliminary benchmark revision estimate which indicates that private payrolls were over-counted by 43,000 per month in the twelve months ending in March 2019).  Health care added 15,000 jobs, and has added 402,000 jobs in the last 12 months.

The October unemployment rate inched up 10 basis points to 3.6%, still near a 50-year low.  A broader measure of unemployment, which includes those who are working part time but would prefer full-time jobs and those that they have given up searching—the U-6 unemployment rate—rose to 7.0% from 6.9%.

Average hourly earnings for all employees on private non-farm payrolls rose in October by six cents to $28.18. Over the past 12 months, average hourly earnings have increased by 3.0%.  For 2018, the year over year pace was 3.0% and in 2017 it was 2.6%.

The labor force participation rate, which is a measure of the share of working age people who are employed or looking for work was little changed at 63.3% in September, very low but up from its cyclical low of 62.3% in 2015.  The low rate at least partially reflecting the effects of an aging population.

The October employment report will support the Fed’s recent indications that it will hold off on further rate reductions unless there is new evidence of a weakening economy.

Earlier this week on October 30th, the Federal Reserve lowered interest rates by 25 basis points to a range between 1.50% to 1.75%.  This was the third cut in as many months.  But Chairman Powell indicated that it may be the last cut, at least in the short term.  In his opening remarks, the Chairman emphasized that the baseline outlook for the economy remain positive, helped by the recent cuts in interest rates.  He also said the Fed “will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.”   This suggests that the Fed will not cut rates further at its next FOMC meeting in December unless upcoming economic indicators show a slowing economy. 

Wednesday’s rate decrease should push down borrowing costs for credit cards, home equity lines of credit, auto loans and adjustable-rate mortgages but also hurt savers in the economy such as seniors and others on fixed incomes.  

Its notable that interest rates have now fallen 75 basis points since July and equate to about a third of the Fed’s nine rate hikes from late 2015 through last year.  They also equal the reductions in rates the Fed enacted in the 1995-96 periods and in 1998.

NIC MAP® Data Service clients attended a webinar in mid-October on the key seniors housing data trends during the third quarter of 2019. Three key takeaways are shared below. We’ll share additional key learnings from the data in the next NIC Notes.

Takeaway #1:  Seniors housing occupancy increased from an 8-year low.

• During the third quarter, seniors housing net absorption totaled 4,977 units for the NIC MAP® Primary 31 markets, the greatest number of units absorbed on a net basis in a single quarter since NIC began reporting the data in 2006.
• At the same time, the quarterly change in the number of units added to inventory slowed to 3,832 units, the second fewest units added to the stock since mid-2016.
• Combined, these factors supported a 30-basis point (bp) increase in all occupancy to 88.0% in the third quarter from 87.7% in the second quarter when it had fallen to its lowest level in 8 years. The all occupancy rate for seniors housing, which includes properties still in lease up, is shown by the green line in the chart below.
• This placed all occupancy 1.1 percentage points above its cyclical low (of 86.9%) reached during the first quarter of 2010 and 2.2 percentage points below its most recent high (of 90.2%) in the fourth quarter of 2014.
  

Takeaway #2:  Third-quarter assisted living occupancy edged up.

• As shown on the chart below, distinct differences in occupancy performance between independent living and assisted living are evident. As of the third quarter, there was a 490bp difference in occupancy rates.
• In the third quarter, assisted living occupancy moved off its record low rate of 85.1% for the past three quarters to 85.4%, as relatively robust demand outpaced new inventory growth. Indeed, net absorption totaled 3,128 units in the third quarter, the most of any quarter except the Q4 2018.
• The occupancy rate for independent living inched up 20bps to 90.2% in the third quarter, 10bps higher than year-earlier levels, but below the rate earlier in 2019.
  

Takeaway #3: Assisted living units under construction slowed.

• Construction as a share of inventory for majority assisted living properties decelerated in the third quarter and equaled 7.3% or 22,000 units. This includes all properties under construction from start to completion. This was the lowest rate since 2015 and down from a peak of 10% in late 2017.
• The same pattern is not yet evident in independent living as the graph below shows. In the third quarter, construction as a share of inventory totaled 6.2%, where it has been hovering for the past year.
  

Stay tuned to NIC Notes for additional highlights from third quarter 2019 data trends.

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The funeral home industry is losing sales.

This was just one insight into the “longevity economy” that attendees of the NIC Fall 2019 Conference were treated to during an enlightening keynote session by Dr. Joseph F. Coughlin, founder and director of MIT’s AgeLab.

Coughlin is a recognized thought leader specializing in the impact of demographics—particularly related to retirement, aging, and real estate.

“Longevity is changing how all of us live,” he said, as he asked the audience to focus on more than just the numbers behind changing demographics. Coughlin described the concept of disruptive demographics and how it will change the future of seniors housing. “The future of your business is not just more old folks. These folks are very different.”

Higher Expectations

The numbers and research are compelling, however.

• Ages 60+ make up the third largest economy in the world, next in line to the GDPs of the U.S. and China.
• In the U.S., those aged 50+ are responsible for 70% of the consumer spend.
• Sixty-four percent of those 65 and over believe their IQ is higher than average.

The next generation of seniors is more educated and more confident than prior generations, Coughlin noted. He believes this leads to higher expectations and ultimately to different desires for their seniors housing. The next generation will expect different and newer products than what worked for their parents.

8,000 Days

Coughlin told the audience to think about how they, as an industry, own a third of adult life, “Old age is longer than we think,” he said. He compared the span of retirement years—roughly ages 65-85, totaling about 8,000 days—to that of ages 0-21, and 21-midlife and noted the lack of defined stages or milestones in retirement. He presented his thoughts on four retirement “stories” encountered during this stage of life.

• Managing ambiguity.  This is the point at which adults are deciding what comes next, whether it be full retirement, consulting, starting a business, etc. Coughlin noted that women over 50 are the second largest group starting new businesses.

• Managing big decisions.  Older adults at one point will face larger decisions such as whether to downsize into a smaller home, relocate, retire completely, etc.

• Managing complexity.  Complexities grow as older adults may begin to face medical problems, financial issues, and more.  

• Managing living solo.  Adjustments are needed as most older adults, particularly women, will end up living alone at some point.

Creating Communities

In general, Coughlin sees the current generation of adults entering retirement years eschewing participation in formal groups, such as joining a church or the rotary, and instead gravitating to lifestyles and ultimately housing based on smaller affinity groups, targeted to commonalities. He sees seniors moving to small towns and college towns for the informal communities and amenities available there.

“College communities form a virtual assisted living, if you will,” he said, noting the availability of entertainment, dining options, and even care at medical schools.

He pointed out that the “service-on-demand” apps and in-home technology popular with the millennial generation are life-changing for seniors too. Already, smart devices can be used to monitor medications, eating habits, and other health concerns. Services that started as conveniences are enabling seniors to stay safer in their homes for longer.

Users vs. Buyers

The baby boomer generation is not the audience for seniors housing yet, but they tend to be the decision makers for their parents’ selections. And buying decisions in general are made primarily by women. “The future is indeed female,” said Coughlin as he cited statistics showing that women are three times more likely to perform online research when making purchasing decisions. Women are now the primary decision makers for automobile purchases, consumer electronics, and health care products.

Looking to the Future

As providers look to the future, Coughlin recommends organizations work to become trusted members of the community so there’s a natural relationship. He sees an evolving notion of seniors housing in which care, community, and brick and mortar overlap with platforms, partnerships, and pipelines built on trusted relationships.

“The future of service and senior services is not a place,” said Coughlin, “it’s any place that person may live.”

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No matter where they live, most seniors prefer to age in place. But as they do, they also typically need more services. These can include assistance with the activities of daily living as well as health services.

But what’s the best way to deliver those ancillary services in a seniors housing or skilled nursing setting?

Effective home care and home health strategies were discussed recently at a well-attended session at the 2019 NIC Fall Conference in Chicago. A panel of experts took a deep dive into the pros and cons of outsourcing the services or taking them in-house.

“Seniors housing and care operators need a strategy,” said panel moderator Joel Nelson, president and CEO at Life Care Services (LCS).

The panelists agreed that an effective strategy can help boost resident satisfaction and also extend length of stay. Residents who can get the help they need where they live are less likely to move. They’re more satisfied, and so are their families.

The difference between home care and home health was defined. Home care consists of help with activities of daily living (ADLs). Home health is typically a Medicare-certified and reimbursed service, such as physical therapy or nursing care.

Several macro trends are impacting the home care and home health markets. The Centers for Medicare and Medicaid Services (CMS) is moving toward value-based care, seeking the best health outcomes in the lowest cost settings. More healthcare is being delivered at home. Also, CMS is allowing some payors to offer home care services. “That creates opportunity,” said Cheri Greenfield, senior vice president, Home Care Operations, Humana.

A 2018 study by Humana showed that the next generation of seniors will have less social support because of smaller and fragmented families, and more elders will live with chronic conditions. “We need to invest in the right services,” said Greenfield.

New Rules Disrupt Home Health

A big change takes effect January 1, 2020, that will impact the home health landscape. The new system—Patient Driven Groupings Model (PDGM)—changes reimbursements from per visit payments to ones based on value.

“The change will push mom-and-pop home health agencies out of the business,” predicted panelist Paul Kusserow, president and CEO, Amedisys, a large home care and home health services provider. He estimated that of the 12,500 home health agencies in the country about a third will have trouble surviving the change in the payments system.

Kusserow views the situation as an opportunity to purchase home health agencies and grow Amedisys. He noted that seniors housing operators might also consider jumping into the home health business, though a partnership with an established company might make more sense because of the complexity of the business.

Panelist Todd Kaestner agreed. “Home health is a technical and complex business,” said Kaestner, executive vice president, corporate development, Brookdale Senior Living. The company offers home healthcare in about 70% of its 800-plus communities. Home care services are available in 100 locations.

LCS launched a home health business in 1985 but several years ago decided to outsource the work instead. “We didn’t have enough scale,” said Nelson, adding that the availability of labor was an issue along with the need to heavily invest in new technology.

Start-ups are difficult, noted Kusserow. Amedisys launches 12-15 home health care agencies a year. The cost is about $500,000, and sometimes double that amount for agencies that require special licensing, such as for hospice services or in a state where a certificate-of-need must be purchased.

Nelson asked the panelists whether home health and home care services compete with seniors housing or represent a route to referrals and higher occupancies.

Humana’s Greenfield views the relationship as a partnership. “We can come together to identify the right services at the right time,” she said.

Kaestner at Brookdale doesn’t see home health as a competitor because of its episodic nature. Home health providers offer treatment for a specific condition over a short period of time. But he added home care services can help increase the length of stay of residents. “It can be a win-win,” he said.

Telemedicine will change the home health market, said Kusserow. “It’s a tremendous opportunity.” Sensors will monitor the elder’s activity and health, signaling when assistance is needed. Amedisys invested last year in Medalogix, a Nashville-based predictive analytics company. It provides data to customize care plans to reduce hospitalizations and keep seniors in the most appropriate care setting—information sought by managed care plans.

Whether a senior living provider decides to launch its own home care and home health business or partner with another provider, the panelists agreed that a strong local management team is necessary for success. “All healthcare is local,” said Kaestner. “This is a people intensive business.”